In Search of the Perfect Investment

I panic.

Yesterday’s column — “Sell everything you own today” — was pure panic. Fortunately, no one listened — though had you sold at the beginning of the day and bought back at the end of the day, you would have saved yourself huge monies.

The big “benefit” was my readers thought my (and their) “logic” through.

Reader G_Wood99 wrote:

Yes there is a huge downside to selling everything you own!!! (I know you were half kidding but please indulge me) Let’s say something wonderful happens tomorrow, like a midnight resolution to this mess … you just missed out on a big rally. Or, let’s say something catastrophic happens tomorrow – you are entirely in cash “backed by the full faith and credit” of a totally dysfunctional govt … put another way, you are broke!

The point is, you never know what tomorrow will bring. So the question is, how can you possibly position yourself for any future?

The answer IMO (in my opinion) is definitely NOT hedging-by-shorting. Heavy fees and the “illogical optimism” of humans make shorting a loser more times than not – at least it’s burned the heck out of me! IMO its all about disciplined diversification – and I’m not talking about “60-40” ratios or a larger basket of mutual funds.

I suggest you Google the permanent portfolio concept. It’s not for everyone but it makes sense to me. (This is the best overview I personally have found : http://www.crawlingroad.com/

(FWIW being relatively young I chose not to rebalance regularly as suggested – that’s more for retirees. Instead I just “feed the laggard” with my contributions . Warren Buffet calls that “buy low, sell never”.

Several of my friends swear by The Permanent Portfolio, which re-balances its holdings of bonds and equities regularly and has achieved remarkably consistent results over long periods. I personally do my own “re-balancing.” I have always had a much larger portfolio of bonds (all triple tax-free munis) than I’ve had in equities. The reason? I don’t have a day job and have to live on the bond interest. But recently, as everyone knows, bonds have been awful investments, especially as many issuers have called them and left me in cash. Hence I’ve been forced — like zillions of others — into something else. That “something else” has been real estate syndication, some startups (minimal) and equities.

So here we are. The federal Government is shut down. That won’t be permanent and it won’t cause long-term damage to stocks:.

And the debt ceiling, with its October 18 deadline? Not raising it could cause major damage. But it won’t. From the New York Times:

Boehner Pledges to Avoid Default, Republicans Say

WASHINGTON – Speaker John A. Boehner has privately told Republican lawmakers anxious about fallout from the government shutdown that he would not allow a potentially more crippling federal default as the atmosphere on Capitol Hill turned increasingly tense on Thursday.

Mr. Boehner’s comments, recounted by multiple lawmakers, that he would use a combination of Republican and Democratic votes to increase the federal debt limit if necessary appeared aimed at reassuring his colleagues – and nervous financial markets – that he did not intend to let the economic crisis spiral further out of control.

They came even though he has so far refused to allow a vote on a Senate budget measure to end the shutdown that many believe could pass with bipartisan backing. They also reflect Mr. Boehner’s view that a default would have widespread and long-term economic consequences while the shutdown, though disruptive, had more limited impact.

You can read the full article here.

Boehner’s pledge lifts the most critical fear overhanging the stockmarket.

These two charts showed trading yesterday:

Twitter is filing. I suspect if you can get some, you should. Good luck. Meantime, from Barry Ritholtz comes a PowerPoint deck showing the five mega trends impacting the IT departments of every company: Mobile, Social, Cloud, Apps and Big Data. In this presentation, Vala Afshar reveals the stats for everyone. The deck is worth flipping though — beware some of his statistics are of dubious quality. Click here.

The Internet (and the phone) is full of fraud. I got scammed this week by a crook “extending”my subscription to the Atlantic magazine. More important:

John McAfee on Obamacare: `This is a hacker’s wet dream’

On Fox Business Network’s “Cavuto” on Wednesday, computer programmer and founder of McAfee, Inc. John McAfee said the online component of Obamacare “is a hacker’s wet dream” that will cause “the loss of income for the millions of Americans who are going to lose their identities.”

For starters, McAfee said the way it is set up makes it possible for fake websites be set up to fool people to think they’re signing up for Obamacare.

“It’s seriously bad,” McAfee said. “Somebody made a grave error, not in designing the program but in simply implementing the web aspect of it. I mean, for example, anybody can put up a web page and claim to be a broker for this system. There is no central place where I can go and say, ‘OK, here are all the legitimate brokers, the examiners for all of the states and pick and choose one.’”

“Instead, any hacker can put a website up, make it look extremely competitive, and because of the nature of the system — and this is health care, after all — they can ask you the most intimate questions, and you’re freely going to answer them,” he continued. “What’s my Social Security number? My birth date? What are my health issues?”

 
Harry Newton who, in the end, did not sell his portfolio yesterday. His key portfolio dropped y $66,000 at the low yesterday but “came back” to lose only $42,000 by day’s end. I’m guessing I’ll make it back within a few weeks — they can’t keep the Fed government closed forever.